Product Innovation and PLM

Introduction
Innovation is essential to the success and perhaps the survival of manufacturing businesses today. Some might even say innovation is the “life blood” of their business. After the hyperbole is over, what does that really mean? Not many companies would disagree that they should be innovative. But what does “innovation” really mean? And is it something tangible, or is it such a loose concept that it can’t be managed or improved? More importantly, in the current product development and engineering scenario, do we really need another loosely defined term when many people are still trying to get a better understand of “PLM” (Product Lifecycle Management) and how it relates to their business? Innovation can be either highly strategic to a business or simply another buzzword – it all depends on how innovation is put to use in business terms.

Too Much Hype around a Good Thing
The term “innovation” is being used frequently enough that it is becoming a part of the background. Like the term “collaboration,” there is true value at the core of the concept. Also like “collaboration,” the overuse of the term is threatening to undermine the value that can be achieved from focusing on innovation. Collaboration was hyped as the ultimate solution to improve business performance. The term was used to describe so many different things that it began to lose its meaning. In relation to product development and engineering, collaboration has become a cornerstone of the way companies are designing and developing products. Numerous case studies have been documented that show reduction of product development cycle times from better sharing of product data, better management of product development processes across organizations, and better communication during product development – or “product collaboration” as we now know it.

Focusing on Product Innovation
In much the same way, “innovation” has been used to describe many things, including both product innovation and process innovation. If you think of innovation as discovering new and better ways to do things, then this applies to both. To manage and control something, however, we need a more specific definition. For the purposes of this article, let’s define “product innovation” as meaning “the application of new ideas to a product in order to increase its market appeal and value.” With this definition, innovation success can be primarily measured by the commercial success of a product. Product innovation means adding value to a product in a way that is appreciated by the customer – resulting in increased sales and profit margins. Let’s not forget that product cost is also very important to the manufacturer and the customer alike, leading to the need for innovation-driven cost reduction in addition to revenue generation.

Product Innovation and the Profitability Equation
Most businesses exist to make a profit, and improved business performance should translate into better profitability. In simple terms, product profitability is equal to the revenue generated by a product less the cost of the product. The cost of the product includes a number of factors, including direct costs – such as parts and labor – as well as product development costs. For the purposes of this conversation, we will not consider sales, marketing and overhead costs. Product innovation – and PLM – can offer improvements to the profitability equation in numerous ways. Let’s review a few ways that product innovation can help improve profitability, starting with increased product revenue:

Profitability Impact – Increased Revenue

Introduce new products to market faster

Offer new, valuable features to customers

Increase fit of products to customer and market needs

Avoid being perceived (and priced) as a commodity

Develop a product portfolio with more differentiated capabilities

Innovation can also help reduce product costs. By developing new and innovative product designs, manufacturing and service costs can be reduced:

Profitability Impact – Decreased Product Cost

Reduce part counts and product complexity

Design for manufacturability

Reuse of existing technology platforms

Design for service

Product development costs are also a target area for improving profitability. In this area, process innovation will probably drive these benefits as opposed to innovation related to the product itself:

Profitability Impact – Decreased Product Development Cost

Increase efficiency of designers

Increase overall efficiency of new product development projects

Increase success rate of new product development projects

Product Innovation, Product Development and Engineering
Innovation is not limited to the development stage of a product. To give life to a great product idea involves the coordination of a number of disparate functions and skills. From the early conceptual ideas that begin to form a product or product platform, through commercial development, engineering, product introduction and into active usage, service and retirement of a product – there is opportunity to add value through innovation. Without execution, innovation can’t be translated into corporate value. Frequently, this requires capabilities that are spread over multiple departments, divisions, geographies and even companies. This has led to greater complexity in product development and engineering as well as greater advantages. Case studies show that companies that are learning to manage the additional complexity are beginning to take advantage of product innovation opportunities and make marked improvements in their business.

Product innovation, in business terms, translates to more profitable products. While “innovation” may still be hard to get a firm grasp on, PLM-enabled product innovation can be translated into measurable bottom line results.

Aberdeen’s Jim Brown is actively investigating the value of Product Innovation, Product Development and Engineering and would like to hear what you think. Please send your thoughts to jim.brown@aberdeen.com.

Jim Brown
VP Global Product Innovation and Engineering Research
Aberdeen Group